Rethinking Incentives in Africa Due to Pillar 2

• Jurisdiction: South Africa
• DOI: 10.10520/ejc-btclq_v16_n2_a3
• Author: Esther Geldenhuys
• Pages: 9-15
• Date: 01 June 2025
• Published date: 01 June 2025
• Published By: Siber Ink

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Rethinking Incentives in Africa Due

to Pillar 2

ESTHER GELDENHUYS*

ABSTRACT

It is well known that base erosion and profi t shifting (BEPS) has adversely

affected Africa over the years. If African countries do not participate in Pillar2

it could again reduce African tax collection. Yet very few African countries

have to date implemented or taken some form of measure to implement

Pillar 2. This is despite the fact that a signifi cant number of African coun-

tries signed either the fi rst or the second joint statement of the OECD/G20

Inclusive Framework on BEPS to implement the two-pillar solution.

Pillar 2 aims to ensure that multinational enterprises within scope pay

a minimum of 15% corporate tax in each jurisdiction in which it operates.

The ground rules for Pillar 2 are set out in the Organisation for Economic

Cooperation and Development Global Anti-Base Erosion Model Rules. These

rules provide for three types of top-up taxes, being the income inclusion rule,

the undertaxed payment rule (also known as the undertaxed profi ts rules) and

the qualifi ed domestic minimum top-up tax rule (also known as a domestic

minimum top-up tax).

The African Tax Administration Forum strongly recommends that African

countries immediately enact the qualifi ed domestic minimum top-up tax rule

as provided for under Pillar2, to protect themselves from giving away taxing

rights to other jurisdictions applying the top-up tax under Pillar 2 arising

from tax incentives. However, not all tax incentives are affected by the GloBE

Rules to the same extent. South Africa has various tax incentives and incen-

tive regimes that may lower the effective tax rate to below 15%. This article

considers some of these incentives in the context of the GloBE Rules.

Introduction and the current status of Pillar 2 in Africa

Pillar 2, which is also known as the global minimum tax, aims to ensure

that multinational enterprises (MNEs) within scope pay a minimum of

15% corporate tax in each jurisdiction in which it operates. The ground

rules for Pillar 2 are set out in the Organisation for Economic Cooperation

and Development Global Anti-Base Erosion Model Rules (GloBE Rules).

The GloBE Rules provide for three types of top-up taxes, being

the income inclusion rule (IIR), the undertaxed payment rule (UTPR)

(also known as the undertaxed profi ts rules) and the qualifi ed domestic

minimum top-up tax rule (QDMT) (also known as a domestic minimum

top-up tax). On a very high-level basis, the IIR requires MNEs to calculate

their effective tax rate (ETR) for each jurisdiction where they operate and to

pay the resultant top-up tax equal to the 15% rate in the jurisdiction of the

* Partner, Bowmans Attorneys.

2025 16(2) BTCLQ 9

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